Blame Dick Durbin for Bank Fees

Bowing to competitive pressures, Bank of America yesterday scrapped plans to impose a monthly debit card fee. The proposed charge antagonized customers and provoked vitriol from politicians all too eager to deflect blame for the dumb regulations that prompted the fee in the first place.

But as much as one might wish for an end to this whole sordid affair, this isn’t it. Nor will there be a satisfactory resolution until lawmakers reverse the policy blunder.

The debit card fees are a direct consequence of the so-called Durbin Amendment, a provision within the deeply flawed Dodd–Frank financial regulation statute. Sponsored by Senator Dick Durbin (D–IL), at the behest of major retailers, the amendment directed the Federal Reserve to regulate the fees that financial institutions may charge retailers to process debit card purchases. Following a lobbying frenzy, the Fed settled on a limit of 24 cents per transaction (on average), or 45 percent less than the customary fee. Thus the cap, which took effect on October 1, will cost banks an estimated $6.6–10 billion a year in revenue.

To the surprise of no one, banks big and small instituted (or planned for) a monthly charge on debit cards to make up for the lost revenue. Indeed, many of the free services long enjoyed by bank customers—and the source of competition among banks—are disappearing fast as a result of Dodd–Frank generally and Durbin in particular.

Bank customers were understandably infuriated at the prospect of new fees, and all the more so as Durbin inflamed passions by heaping condemnation on the banking industry (without mentioning his role triggering the whole chain of events). Against such a backlash, the banks retreated.

Just imagine if Congress were to respond to constituents’ complaints with even half the immediacy of the banks’ response to their customers.

However, consumers should be aware that different fees will make up the lost revenue. It would be naïve to conclude that banks will just accept losses. Consumers can expect fewer rewards programs, higher fees on checking accounts (including extra fees for such things as writing too many checks), and annual fees for credit cards. But it’s likely they won’t be as transparent—a perverse result of a statute intended to make the financial sector more accountable.

All of which should be blamed squarely on Durbin and the other lawmakers who evidently fail to recognize that regulations carry costly consequences. So the next time news breaks about a new bank fee, the public ought to consider whether bank officials or elected officials really are at fault. In this instance, Durbin and those who supported his amendment are to blame.

Join The Discussion

The fees which are now capped are for transactions that cost the banks about $0.07 on average to process (and as little as $0.04 if pin numbers are used instead of signatures). Banks were making a profit margin upwards of 600% on those fees. The new cap limits them to roughly a 300% profit margin.

If the banks are so greedy that they can't live with a 300% profit margin and instead choose to charge fees onto their customers then there's something very very wrong.

I personally switched from Citibank to a local credit union and could not be happier.

Good for you, George!
Moving your business to a service provider with more competitive charge or service, is exactly how Real Capitalism is supposed to work.
Unfortunately, the system we now labor under -wherein Congress is allowed to set pricing for private business- is called Crony Capitalism…..
Every rule and regulation that Congress (or their army of un-elected bureaucrats) place upon us, exists to protect someone elses business/, or fortune, or sector…..In True Capitalism, it is the end user- as in you, George- that reaps the benefit….in the system we now have in place, it is always the existing business -or the existing fortune- that is protected…..

The fees which are now capped are for transactions that cost the banks about $0.07 on average to process (and as little as $0.04 if pin numbers are used instead of signatures). Banks were making a profit margin upwards of 600% on those fees. The new cap limits them to roughly a 300% profit margin.

A more interesting post would be on why the banks were receiving so much money from the merchants in the first place and why the legislation was bad. It clearly seems inefficient and I agree that the banks will make up the money in one or another, but you're not really telling me anything new.

Additionally, I have a hard time taking you serious when you write a consequence of the Durbin Amendment will be annual fees on credit cards. This shows either an editorial oversight or a poor judgement of economics and incentives, the latter of course more damning to your analysis.

Credit cards and credit card transactions were not effected by the Durbin Amendment and issuers still receiver a large percent of the transaction. Therefore, Bank of America and others would naturally start promoting their credit cards over debit cards and would lower annual fees to attract more users to the more lucrative business.

I still don't understand why The WE the PUBLIC has to pay a bank to use OUR money?????? the banks should be more than happy to use our money for free. but NO the Crooked *#*#*#)@*$) have to Rape the public on top of using our money for Free and loan it out for a Profit. what a Bunch of B.S.

I have no problem when businesses bow to competitive (free market) pressure as opposed to political pressure. The free market regulates faster and more efficiently than can any law, rule or regulation. I'm sure statist politicians know this…and it drives them crazy that they cannot "control the people" the same way.

Hayek told us in his book The Road to Serfdom that regulations are good as long as they encourage competition but most regs seemingly discourage it, driving companies out of business or the country and maintaining high unemployment rates.

The blame goes directly to our Federal Government, and does not branch from there.
The federal government has within its realm of Constitutional rights and duties, to regulate banks, commerse, treaties, and actions that may bring direct physical harm or hurt to the American People.
It does not, however, have within its powers to interfere with the natural growth and death of "Free Market." Our Republic is firmly enrouted in the "Free Market, Free Enterprise Systems", with no allowable room for government intervention, other than to keep it honest and from monopolies, and from bringing physical harm to the laborers.
The Federal Governemnt had no legal stance with "Fannie Mae, nor Freddie Mac", but did it anyway, and when banks begin to question loan applications, the threat of removal of FDIC was given.
The Federal Government had no legal authority to bail out General Motors, nor Chrysler, nor any of the Banks it did, nor the Stock Market Brokers, because under the "Free Market, Free Enterprise Systems" there are no such entities, as "To Big to Fail."
I propose this question:
"If I were to take all my holdings, possesions, et al, and convert to cash, then take it with me in my car, to a section of town, known for having people who tend to be underhanded, and I had just heard on the "NEWS", that the Federal Government just made a "New Law", "Underhanded people in certain sections of town, are not responsible IF they come upon anything of value and take it, because this NEW LAW says it is not stealing; and then I just park my car in the middle of that area, doors open, motor running, keys in it, and leave all my life's stuff in it, and just walk away?"
"Remember, I left it, it was mine to do so, it ain't stealing because the government says so, and I come back, and the car is gone, and all my stuff is gone with it, just who is to blame?"
Not the one or ones who took it. The Law is on their side, so it must be me? Right? I left it there, knowing it was not safe, I was unprotected, and there was no recourse to get any of my stuff back?
"Yes! You are Right! I am the idiot! But not for leaving all my goods there. No. For allowing any that are elected to go outside of the boundaries set forth in our Constitution to contain their authority, their power, against me, a citizen, and to give power to a criminal intent."
That is what I am guilty of, just as my father, and his befor him. It is time we stood our ground and owned up to our duty to uphold our sacred Constitution, make a Stand, and demand that our right to rule this Republic be given back to us, as defined.
The only "guilty" parties for the past 160+ years have been our politicians and their greed, and platforms.

This has little to do with banks and more to do with small business. If you are a frozen yogurt store who is doing 56,524 transactions a year it raised the over-head $11,000.00 just in additional transaction fees not to mention the additional interest.
The Durbin Amendment seriously affected small business – hurting their bottom line at a time when small business needed the help.

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